I'm a co-founder of NorthBridge Energy Partners, LLC., a consulting firm that helps companies connect assets to power grids. I'm also a former Senior VP of Energy Technology Services for Constellation NewEnergy, Inc., and have 20+ years of experience in the energy industry. I've written for the Boston Business Journal, Mass High Tech and several other online industry publications. I have a B.A. from Williams College and a Masters from Tufts University’s Fletcher School.

If America is the New Saudi Arabia, What Does That Mean for Our Energy Future?

Just seven years ago – post Katrina – the US energy picture was looking pretty grim. The hurricane had recently battered the Gulf oil and gas infrastructure, temporarily crippling or permanently shutting many undersea pipelines. Oil and gas were precious commodities in short supply. Gas peaked at $14 per mmbtu and – with China growing rapidly – economists were speculating what $300 a barrel oil would do to the world economy. At that time, a small quantity of US shale oil was being unlocked by mining the rock out of the ground, trucking it to centralized plants, and heating the rock to release the hydrocarbons. In fact, Exxon, Shell and Chevron had spent billions in the 80′s trying to get at the stuff. We knew at that time that we had vast quantities of oil and gas locked in North American shales, but we didn’t know how to get it cost-effectively or at scale. Now, with new technology, everything has changed. If there is a truism we should by now have come to accept, it is to avoid single point extrapolations, look skeptically at the accepted wisdom of the day, and listen for the whistling wings of the Black Swan. In the energy world, things can change unexpectedly and quickly.

So just a few short years later, if the new estimates of the InternationalEnergy Agency are correct, America is the New Saudi Arabia – in both oil and natural gas. By 2020, the IEA projects that the US will be a net exporter of natural gas. Judging by the number of liquid natural gas (LNG) export permits being sought in the last two years (equal to over 60% of current domestic consumption), this export role is entirely feasible. Such a development is likely to exert upward pressure on gas prices if for no other reason than the fact that the currently landlocked and illiquid markets may soon become global. Someday soon, we may see a Rotterdam gas clearing price.

By 2035, the United States is expected to become an exporter of oil. On the face of it, that’s good news for our long-sought goal of energy independence. But what’s also interesting is the IEA projection that in real terms (adjusted for inflation) oil prices are seen reaching $125 a barrel. That’s an often overlooked factor in energy markets. Energy independence does not equate to lower prices. When you pour oil into a global bathtub, the price is affected by global supply and demand. Unless you want to inhibit free trade, that’s the way it works for oil. And that dynamic will also influence gas prices once export volumes become meaningful.

That’s not necessarily a bad thing for the economy: exporting oil and gas creates jobs, improves our balance of trade, and strengthens the US dollar (bad for exporters, good for Wal-Mart). To get an idea of where it may take us, we have only to look North to Canada and the impact of the tar sands on the strengthening of Canadian economy.

On the other hand, if you have concerns about the climate science, these newly unlocked fossil supplies are not a good thing at all. The increase in domestic fossil fuel supplies will likely postpone our focus on grappling with the tough issues relating to global carbon emissions. In order to meet carbon stabilization targets, the IEA notes that a “concerted policy push” for energy efficiency adoption will be necessary. Without that push, they estimate, 2/3 of all economic efficiency potential will remain unrealized. That’s bad for the environment, but it’s also unnecessary money left on the table. In the euphoria over the newly abundant fossil fuels, it would be easy to forget that the most economically beneficial energy resource is still energy efficiency. Per dollar spent, it actually creates more employment, more broadly throughout the economy. It creates jobs closer to population centers where they are most needed, with stronger secondary economic ripple effects. More energy efficient businesses and economies are more globally competitive.

As the IEA’s Executive Director, Maria Van Hoeven emphasizes “North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world, yet the potential also exists for a similarly transformative shift in global energy efficiency.” She’s right. Just as we have found new oil and gas in the ground, our ability to squeeze more GDP out of a BTU through efficiency is also undergoing a radical transformation. Lighting is being revolutionized by LEDs. IT improvements and intelligent chips put efficiency potential where it didn’t exist five years ago. With the smart grid, buildings can become batteries, and industries can dramatically cut costs and achieve the same output. By the same token, renewable technologies are following similar output efficiency and cost reduction curves, while growing more quickly than most optimistic projections of just a few years ago. Solar finance is getting more efficient, the cost of panels is falling, and installation is more efficient. On the wind side, turbines are getting bigger, more efficient, and more cost-effective. And the battery revolution may be sneaking up on us in the near future.

So in the big picture, where does this all leave us? Looking forward fifty or a hundred years, irrespective of the amount of supply available, it is pretty clear from an environmental perspective that unconstrained fossil fuel use is just not tenable. From an economic perspective, the recent discoveries of abundant domestic shale oil and gas supplies may help us avoid the likelihood of an oil shock and buy us the breathing ground to plan for a more gradual transition to a more efficient post-fossil world. The question, looking back might be “Did we use the shales to buy us the necessary breathing room, or were we simply lulled into deepening our fossil addiction?” Our kids will be able to answer that one for us.

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